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Improvements Could Be Made in Reconciling Other Defense Organizations Civilian Pay to the General Ledger

DODIG-2016-066

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March 25, 2016 — Objective

We determined whether selected Other Defense Organizations (ODO) properly reconciled civilian pay reports to their general ledger in FY 2014. This included whether civilian pay was properly accrued and employer contributions were recorded.

Finding

Defense Finance and Accounting Service (DFAS) properly performed civilian pay reconciliations to the general ledger for 18 of 33 ODOs totaling $6.6 billion of $11.1 billion in civilian pay. In addition, DFAS properly accrued civilian pay for the 12 ODOs that used the Defense Agencies Initiative or the Defense Business Management System general ledgers. Furthermore, DFAS Agency-wide Audited Financial Statement team properly calculated employer contributions for 28 of the 33 ODOs. However, DoD officials did not reconcile civilian pay records or review reconciliations to the general ledger for 15 of the 33 ODOs reviewed, which totaled $4.5 billion of the approximate $11.1 billion of the civilian pay amount. Specifically:

  • DFAS Indianapolis, DFAS Columbus, or ODO officials did not reconcile civilian pay records for 8 of 33 ODOs reviewed, totaling $2.3 billion; and
  • DFAS Indianapolis did not review the reconciliations performed by 7 of 33 ODOs reviewed, totaling $2.2 billion, to ensure that the reconciliations were accurate and supported by transaction detail.

In addition, DFAS Indianapolis officials could not identify a complete universe of ODOs that paid civilian employees with general funds.

This occurred because DFAS did not have a formal plan to reconcile civilian pay for ODOs that paid civilians with general funds. In addition, DFAS Indianapolis did not have a process narrative, process map, or adequate standard operating procedures on the civilian pay reconciliation process. Additionally, the reconciliation of ODO’s civilian pay was decentralized within DFAS.

ODOs civilian pay represented 5.85 percent of the FY 2014 DoD Combined Statement of Budgetary Resources for ODO General Funds. If DFAS cannot identify a complete universe of ODOs that paid civilian employees with general funds and does not have a plan to reconcile or review that civilian pay reconciliations are performed for the 15 ODOs that remain, DoD may not achieve audit readiness by the statutory deadline of September 30, 2017. Furthermore, if civilian pay reconciliations for ODOs are not performed on a regular basis, significant testing and larger sample sizes will be required in future audits at an excessive amount of time and cost.

Recommendations

We recommend that the Director, DFAS Indianapolis identify the universe of ODOs. In addition, we recommend the DFAS Directors at Indianapolis and Columbus develop a formal plan to reconcile or review the civilian pay reconciliations for the remaining 15 ODOs. The Director, DFAS Indianapolis should develop a process map and process narrative, and prepare standard operating procedures that clearly describe the civilian pay reconciliation process. The Director should also centralize the ODOs civilian pay reconciliation process, and coordinate with the Financial Improvement Audit Readiness Directorate to ensure there is an accurate assessment of the audit readiness of the ODO General Fund financial statements.

Management Comments and Our Response

The Director, Enterprise Solutions and Standards concurred with all the recommendations and addressed the specifics of the recommendations except for Recommendations 1.b.(1), and 1.b.(2). We request that the Director provide additional comments on Recommendations 1.b.(1), and 1.b.(2) by April 25, 2016.